a world that lasts forever Annual report 2017 Contents Annual review Sustainability review Review by the Board Governance of Directors and Key figures 2017 ................. 4 Sustainability at Outokumpu ......... 2 Financial statements Corporate Governance statement . 2 Our year 2017 ................... 5 Sustainability highlights 2017 ........ 4 Key risks ....................... 17 Global leader in stainless steel ....... 6 Safe and healthy working environment .. 5 REVIEW BY THE BOARD OF DIRECTORS . 2 Remuneration .................... 22 CEO’s review .................... 7 A year of learning and boosting KEY FINANCIAL FIGURES ............ 12 Shares and shareholders ............ 26 organizational health ............... 7 Outokumpu strategy – becoming the Group key figures .................. 12 Information for shareholders ......... 28 best value creator 8 Responsible sourcing, ................. Reconciliation of key financial figures ... 13 responsible supplier 10 Stainless steel market 10 ............... .............. Share-related key figures ............ 15 Resource efficiency and the circular economy ....................... 12 Definitions of share-related key figures .. 16 Energy efficiency .................. 14 FINANCIAL STATEMENTS ............ 17 This Annual report Environmental impacts to a minimum .. 16 Consolidated statement of income ..... 18 combines Outokumpu’s Protecting the climate ............. 18 Consolidated statement of comprehensive income .............. 18 sustainability and financial Environmental compliance ........... 20 Consolidated statement of financial Sustainable stainless 21 reporting for 2017. .............. position ......................... 19 Scope of the report 23 Outokumpu’s Sustainability ................ Consolidated statement of cash flows ... 20 review has been assured Independent assurance report ........ 25 Consolidated statement of changes in equity .................. 21 and Financial statements Notes to the consolidated have been audited. financial statements ................ 22 Income statement of the parent company 64 Balance sheet of the parent company ... 65 Cash flow statement of the parent company ................... 66 Statement of changes in equity of the parent company ................... 67 Commitments and contingent liabilities of the parent company ................... 67 AUDITOR’S REPORT ................ 68 Outokumpu Annual report 2017 | Annual review 2 / 12 Annual review 2017 DURABLE BRILLIANCE n There is now, more than ever, a powerful need for sustainable and lasting solutions that pass the test of time and can be recycled and used time and again. There is a need for stainless steel. Key figures 2017 Outokumpu’s adjusted EBITDA more than doubled to 631 million euros. Profitability improved because of our relentless focus on cost control and productivity measures. Long-term targets by the end of 2020 2017 2016 2015 2014 2013 Net sales, € million 6,363 5,690 6,384 6,844 6,745 Stainless steel deliveries, 1,000 tonnes 2,448 2,444 2,381 2,544 2,585 Adjusted ROCE Gearing Adjusted EBITDA, € million 631 309 165 263 –87 EBITDA EUR Net result for the period, € million 392 144 86 –439 –1,003 Operating cash flow 328 389 –34 –126 34 Net debt, € million 1,091 1,242 1,610 1,974 3,556 750 12% <35% Debt-to-equity at the year-end, % 40.1 51.4 69.1 92.6 188.0 Personnel at the year-end* 10,141 10,600 11,002 12,125 12,561 million * Personnel in 2014 and 2013 from the continuing operations. Adjusted EBITDA, € million Net debt, € million Operating cash flow, € million 600 4,000 400 500 3,500 300 3,000 400 200 2,500 300 2,000 100 200 1,500 0 100 1,000 –100 0 500 –100 0 –200 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 2013 2014 2015 2016 2017 Outokumpu Annual report 2017 | Annual review 4 / 12 Our year 2017 Kemi mine to go one New business area: New patented grades Innovative skyscraper Ratings upgraded twice kilometer underground Ferrochrome Outokumpu’s latest stainless Outokumpu has provided 1,000 Outokumpu has been rated by To secure a continuous chrome supply Ferrochrome operations were sepa- steel innovations – high-chromium metric tonnes of Supra 316L/4404 Moody’s since 2015 and, in 2017, for the coming decades, Outokumpu rated from the business area Europe grades – obtained European patents stainless steel with Deco Linen finish the company’s ratings were upgraded invests approximately EUR 250 as its own entity as of January 1, in March 2017. Both the ferritic Core for the 392.5-meters-high China twice. First the issuer corporate family million in the Kemi mine expansion in 2018. After the change, Outokumpu 4622 (EN 1.4622) and austenitic Resources Group headquarters in rating was upgraded to B2 in May and 2017–2020. The investment will have has four business areas – Europe, the Supra 316plus (EN 1.4420) have mainland China. The innovative new again to B1 in November. Moody’s an employment impact of 300 full- Americas, Long Products and Ferro- been developed in Outokumpu’s building designed by KPF architects has also upgraded the ratings for time equivalents. Construction work chrome. Ferrochrome is an integral R&D Center in Tornio, Finland. It has employs stainless steel in 56 external Outokumpu’s senior secured notes has started and it will be completed part of Outokumpu’s operations and taken only four years to progress from columns that support its glass facade, to Ba3 from the previous rating of in 2020, when mining will begin in a clear competitive advantage for market introduction in 2013 to a creating an iconic form without the B1. The outlook of all ratings is stable. the new levels. So far, Outokumpu’s us. The reporting change will also patented product. These grades fulfill need for internal columns to break up Outokumpu is pleased that Moody’s mining operations have been up to increase the transparency of our customer demand for products with open floor plans. Stainless steel has has noted our improved operational 500 meters underground. business internally and externally enhanced properties and stable raw become a popular material for facade performance and balance sheet and, therefore, provide the financial material cost. applications in China, replacing other and has consequently upgraded our community a better understanding on materials, such as aluminum, as it ratings. Further reduction of net debt Outokumpu’s business drivers. How do you come up with a new has a longer life cycle and is easy to and improving of our credit metrics stainless steel grade? Read more on the Ferrochrome clean and maintain. remain key objectives for Outokumpu. business area Why is stainless steel an ideal Credit information material for this application? Outokumpu Annual report 2017 | Annual review 5 / 12 Global leader in stainless steel Outokumpu is the global leader in stainless steel. We aim to be the best value creator in stainless steel by 2020 through our competitive edge of customer orientation and efficiency. n 2017, Outokumpu’s sales amounted to 6.4 billion euros and stainless Sales by business area, € 6,363 million steel deliveries 2.4 million tonnes. Outokumpu is the clear market leader in Europe and the second largest in the Americas market. Other operations I Long Products As of January 1, 2018, Outokumpu has four business areas: Europe, the 10,141 6% 4% Americas, Long Products and Ferrochrome. Our production units are located employees in Finland, Germany, the US, Sweden, the UK and Mexico, and we serve our Americas customers through a global sales and service center network. Outokumpu’s 24% own chrome mine in Kemi, Finland is the source of the key raw material for stainless steel. 66% Europe Our most important raw material is recycled steel, and the recycled content in our products is exceptionally high in the industry: nearly 90% of the raw material we use in stainless steel production is recycled – either scrap from Operations in the market or recycled from our own operations. At the end of its long life Deliveries by business area, % cycle, stainless steel can be recycled infinitely without any quality degrada- tion during reprocessing. Long Products over 30 7% We are proud of our products and competence. Stainless steel is an answer countries to many challenges posed by the megatrends of urbanization, mobility, climate change and limited resources. It is sustainable, durable and designed Americas 30% to last forever. We melt and mold recycled steel scrap into beauty and functionality that can be used and admired in various forms around the world. You can find us in civilization’s basic structures and its most famous 64% Europe landmarks. You can also find us in homes as kitchen sinks, household cutlery and washing machines. Stainless steel is all around us. Founded in Finland in Outokumpu is listed on Nasdaq Helsinki. n 1914 Outokumpu Annual report 2017 | Annual review 6 / 12 CEO’s review 017 was a successful year for Outokumpu: we achieved our key financial targets and made solid progress towards achieving our 2020 vision – to 2be the best value creator in stainless steel by 2020 through customer orientation and efficiency. Rigorous execution of our six must-win battles – safety, high-performing organization, world-class supply chain, manufacturing excellence, commercial excellence and the Americas transformation – has resulted in higher profitability and strongly improved financial health of the company. Outokumpu’s adjusted EBITDA more than doubled from EUR 309 million to EUR 631 million. While the positive development in ferrochrome pricing during the first